Saxony CPI

July: +0.2% m/m, +1.2% y/y
June: +0.1% m/m, +1.0% y/y
—
Pan-German CPI

MNI median forecast: +0.3% m/m, +1.1% y/y
MNI forecast range: flat to +0.4% m/m

June: +0.1% m/m, +0.9% y/y
—

BERLIN (MNI)- Consumer prices in the eastern German state of
Saxony rose 0.2% in July, lifting the annual inflation rate to +1.2%
from +1.0% in June, the state statistics office said Wednesday.

The monthly result — the first from the six states to release
preliminary inflation figures — is below the median forecast of +0.3%
for pan-German CPI in a MNI survey of analysts.

Monthly inflation was partially driven by food and non-alcoholic
beverages, the price for which rose 0.3% m/m.

Conversely, seasonal foodstuff was 0.2% cheaper on the month.
Household energy was also cheaper in monthly terms, falling 0.1% due to
declines in both gas (-0.3%) and heating oil prices (-4.8%). Excluding
both seasonal food prices and household energy, the overall index was up
0.3% from May.

In an annual comparison, the most significant movement among the
larger components was in household energy prices, which rose 3.4% on the
back of a 24% gain in gas prices. Excluding household energy prices, the
core rate came to +1.1% on the year. Transport costs also registered a
notable rise, increasing 3.2% on the back of costlier motor fuel prices
(+10.7%).

On the other end of the spectrum, the 2.0% drop in annual package
vacation prices left overall leisure and culture prices down 0.1%
compared with July 2009.

Both headline and core inflation rates are seen remaining low over
the coming months due to the still-substantial degree of slack in the
German economy.

Moreover, wage growth in all likelihood will stay subdued given
that pay deals have been very moderate up to now. The pricing power of
businesses is still low in light of weak demand.

At the same time, it is not expected that Germany will head into
outright deflation territory. The Bundesbank last month forecast German
average inflation of +1.2% this year and +1.6% next year.

ECB Executive Board member Juergen Stark said earlier this month
that there are no deflationary risks in the Eurozone.

“I do not see short-term deflationary risks,” he said, noting that
currently only one Eurozone country has negative inflation rates. Recent
money developments also do not point to a deflationary trend ahead, the
ECB’s chief economist observed. “We expect a very gradual recovery in M3
growth in the months to come,” he said.

For detailed information see the data table on MNI MainWire.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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